Editor’s note: This article was originally published on Skadden.
In recent years, the application of a “conscious avoidance” or “willful blindness” theory as the basis of attorneys’ liability for clients’ criminal conduct has been on the rise. In principle, this standard — commonly referred to as the “ostrich” theory — allows an attorney with no actual knowledge of a client’s wrongdoing to be held liable for providing legal services if the attorney suspected criminality on the client’s part and took deliberate steps to avoid learning the truth. In practice, however, the standard may be enforcing an ill-defined duty to investigate red flags in situations where the ethical rules governing attorneys would find misconduct only if an attorney had actual knowledge of a client’s criminality.
Hypothetically, assume you are the general counsel of a major U.S. corporation controlled by a Canadian company. The U.S. corporation’s CEO owns 65 percent of the shares in the Canadian company and therefore effectively controls both. You are asked by the CEO to prepare and sign, on behalf of a U.S. subsidiary, an agreement to pay the CEO a certain sum in exchange for not competing with the subsidiary’s business for three years after he stops working for the U.S. corporation. While it seems unlikely that the CEO would compete with the subsidiary’s business, that’s a decision for the company’s board of directors and audit committee, which is required to approve transactions between corporate executives and the company or its subsidiaries. So you prepare and sign the agreement.
If you look to the ethical rules governing attorney conduct, it appears you have done what you needed to do. The American Bar Association’s (ABA) Model Rules of Professional Conduct Rule 1.2(a) allocates authority between clients and lawyers and states that “a lawyer shall abide by a client’s decision concerning the objectives of a representation and … shall consult with the client as to the means by which they are to be pursued.” Here, the corporate leadership has decided to execute the non-compete agreement by having you prepare and sign it on behalf of the subsidiary.
Of course, ABA Model Rule 1.2(d) also states that a “lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.” Rule 1.0(k) defines “know” as “actual knowledge of the fact in question.” You don’t have actual knowledge of any fraud here.
Rule 1.0(k) adds that “